I have about 83k in various investments with a brokerage firm in upstate NY. Apparently, what I need to do is... liquidate the assets and wait for a check which I will quickly deposit into a Vanguard Taxable Account. What are the tax implications? I'm about 4k up since working with the broker.

vpotus wrote:I have about 83k in various investments with a brokerage firm in upstate NY. Apparently, what I need to do is... liquidate the assets and wait for a check which I will quickly deposit into a Vanguard Taxable Account. What are the tax implications? I'm about 4k up since working with the broker.

Thanks.

VP

If you really want to know you go fill out a dummy tax return that comes close to what you will actually report for 2013. You can do it with and without the proposed liquidation. That will take into account the actual capital gains, short and long, any offsets such as capital loss carryovers, tax brackets affected by exemptions and deductions and applicable tax rates. Short of all that there is no way to really be sure what the cost will be.

If you have a 4k gain, then you need to pay tax on this if you liquidate the account.

On the other hand, if you plan to keep the holding, you can perform an in-kind transfer (ACAT). You initiate this from the new brokerage. However, a transfer out typically entails some exit fees from the broker losing your business (usually $50 and up).

TY. I spoke to a representative today at Vanguard before I posted here. I have a 403b there and I need to create a taxable account. Will I be able to initiate an in-kind transfer from within Vanguard? The representative gave me the impression that my only recourse was to sell my funds with the broker and then expect a check.

Confusing... Thank you for your help.

I should also specify that I'm not interested in brokerage services - just investing in index funds.

Vanguard has a free "concierge" service that will guide you through the process. Call their help number and ask to work with one. Mine has been most helpful.

Most funds will transfer with no problem, since the Vanguard brokerage handles many non-Vanguard funds. Other funds may have to be sold first. Also, some fund companies require a medallion stamp (your bank may be able to provide) on the transfer request. These are the kinds of things the concierge is paid to figure out.

vpotus wrote:TY. I spoke to a representative today at Vanguard before I posted here. I have a 403b there and I need to create a taxable account. Will I be able to initiate an in-kind transfer from within Vanguard? The representative gave me the impression that my only recourse was to sell my funds with the broker and then expect a check.

Confusing... Thank you for your help.

I should also specify that I'm not interested in brokerage services - just investing in index funds.

VP

Your current broker has every reason to try to get you to sell the funds on his/her end (the more the sales or transaction costs, the more his/her incentive). There may be a charge to close the account or to transfer the money to Vanguard even if you liquidate the holdings first.

As mentioned, the Vanguard Concierge Service will help you with this. One thing to check is that all of your holdings are within the fund families or stocks that Vanguard allows. If there are any that they don't work with, yes, you will need to liquidate those first, and transfer that as cash along with the remaining holdings.

Your current broker's quick statement that you *had* to sell before transferring - and incur taxes - demonstrates whose "interests" are of interest to him/her!

Once the transfer is in process, it wouldn't hurt to call the Vanguard Concierge a few times to make sure there are not delays (especially "courtesy of the first broker").

I'm sorry if I was unclear, but it was the Vanguard rep. who suggested that I had to liquidate my holdings. I haven't talked with my soon-to-be-former broker. I will get a hold of the concierge service.

vpotus wrote:I'm sorry if I was unclear, but it was the Vanguard rep. who suggested that I had to liquidate my holdings. I haven't talked with my soon-to-be-former broker. I will get a hold of the concierge service.

Everyone has been most helpful!

VP

Hmmm....

Did you give the list of holdings to the Vanguard rep?
That advice would be appropriate if you had all funds from some fund family/families that Vanguard doesn't handle.

Depending on the funds, it may cost $35 to sell each at VG. Again, it depends on the fund-it may also cost $0. That is something to confirm with the VG rep. You would want to compare that cost versus selling at your current brokerage--that could be expensive or it could cost you nothing.

With stocks or ETFs, it would probably be cheaper to sell at VG unless you are paying an AUM fee instead of commissions to your current broker.

Since your unrealized gains aren't that big, I would just sell everything and move the funds/asset allocation you desire at Vanguard--it's easier to just make a clean break all at once than dragging out the reallocation over a long period.

vpotus wrote:TY. I spoke to a representative today at Vanguard before I posted here. I have a 403b there and I need to create a taxable account. Will I be able to initiate an in-kind transfer from within Vanguard? The representative gave me the impression that my only recourse was to sell my funds with the broker and then expect a check.

Confusing... Thank you for your help.

I should also specify that I'm not interested in brokerage services - just investing in index funds.

VP

I am getting confused here. If you have a tax-advantaged 403(b) account, why would you want to convert it to a taxable account? You can rollover the 403(b) into a traditional IRA without any tax consequence. Perhaps the rep had suggested that you sell all the former funds, then have the cash roll-over into a traditional IRA at Vanguard. Is this what you wanted to do?

Sorry for the confusion. The money is currently in a taxable account with my broker. I wish to move it to Vanguard. If I could put the money in a 403b... I would LOVE to do that. But I think the law doesn't allow me to do that. Hence, the taxable account is my only option.
Thanks.

Are you completely maxing your 401k (or 403b, as you mentioned) and Roth or Traditional IRA accounts? If not, I would be hard pressed to find a reason not to reserve some of this taxable investment money, and start maxing your deferred accounts.

Assuming your broker has rec high expense ratio funds, It may worth it to cut your loss and pay for the tax.
Several years ago, I used to invest in several different actively managed funds and sell all of them and use 4 funds portfolio at Vanguard and I have not regret my decision at all.
Good luck!

vpotus wrote:Sorry for the confusion. The money is currently in a taxable account with my broker. I wish to move it to Vanguard. If I could put the money in a 403b... I would LOVE to do that. But I think the law doesn't allow me to do that. Hence, the taxable account is my only option.
Thanks.

VP

As you can see, there is a huge bunch of people here who would love to help you.

All you have to do is take a couple minutes of your time and actually lay out the situation you'd like help with in some detail.

Or, if you're just so busy you can't take the time to type everything out you could...oh gotta go spent too much time here already...

roymeo

The sewer system is a form of welfare state. |
-- "Libra", Don DeLillo

Are you completely maxing your 401k (or 403b, as you mentioned) and Roth or Traditional IRA accounts? If not, I would be hard pressed to find a reason not to reserve some of this taxable investment money, and start maxing your deferred accounts.

WHL, I have not been maxing out my 403b but I wish to. I'm in the process of cleaning up my financial life.Since my mother's death, I've taken a crash course on finance and have come to understand how awesome VG is. (I actually have an old-style 403b at VG that I cannot add money to because VG is no longer recognized by my employer. I'm trying to get that reestablished so I can move my funds at my current 403b.)

I also have an Oppenheimer Roth that I wish to move over to a VG Roth.

I want to move the money away from a brokerage house and its high fees to VG.

Roymeo, here is the whole story: My mother died last fall. She had had her money with a broker who called me within hours of her death. The broker was very helpful and helped me to locate the various accounts that held inheritance money. I inherited about 200k. About 120k came to me TOD and has been sitting in a low -interest savings account until I get my mother's estate matters settled. I left the other 80k with the financial person because I didn't know much about fees and how they detract from the investment.

In the meantime, I am looking for the easiest way to move my money from this broker to VG. I want to manage the money myself.

My question(s): Is it possible to take this money, which I recently inherited, and move it easily to my 403b? I don't think so... Can I roll-over 80k from a brokerage account to a Roth? (Isn't there a limit of $5500?) So... I think my only option is to initiate a standard IRA and move it into that.

Thank you for your help cleaning up my financial matters.

VP

Last edited by vpotus on Thu May 30, 2013 2:28 pm, edited 1 time in total.

Are you completely maxing your 401k (or 403b, as you mentioned) and Roth or Traditional IRA accounts? If not, I would be hard pressed to find a reason not to reserve some of this taxable investment money, and start maxing your deferred accounts.

WHL: I have not been maxing out my 403b but I wish to. I'm in the process of cleaning up my financial life. Long story short: I want to move the money away from a brokerage house and its high fees to VG.

I also have an Oppenheimer Roth that I wish to move over to a VG Roth.

Is it possible to take this money, which I recently inherited, and move it easily to my 403b? (I don't think so.)

Thanks. VP

was the inherited money also in a 403b-or tax advantaged account. It might be possible but don't distributions have to start when the deceased woud have hit 70 1/2

No, you can't just shove extra money that isn't already in a tax-advantaged account into one, you're always subject to the standard rules and yearly limits. If it were already in tax-advantaged space there may be options.

Speaking of that: You can't add to an old employer's plan. But you have options for what you can do with that:
- leave it there (since it's a VG plan, it's already low cost etc. depends on whether the fund selection is adequate)
- cash it out (bad idea! lose an extra 10%)
- roll it to a current employer's plan (if the plan is good or better)
- roll it over to a Traditional IRA or Roth IRA (at Vanguard, et al)

I personally have a Traditional IRA that is mostly funded by several past employer's 401k & 403b plans.

As for your 80k, there's still some unanswered questions about what that money is in, but it sounds like it's probably just a mishmash of individual stocks and funds. So there's 2 things to do: roll it over to a Vanguard taxable account & figure out what you want to invest it in. You could roll it to a money market account at VG while you figure it out, or wait.

Since it's in taxable, you can also push up to the limits into tax-advantaged accounts (IRA/Roth) and/or max our your work plan if you're not already doing so.

Make sure you check with Vanguard before liquidating; it may be to your advantage. Back when I did that Vanguard waved all the brokerage fees, saving me plenty when I transferred all my assets and then sold them. -- Tet

Roymeo, here is the whole story: My mother died last fall. She had had her money with a broker who called me within hours of her death. The broker was very helpful and helped me to locate the various accounts that held inheritance money. I inherited about 200k. About 120k came to me TOD and has been sitting in a low -interest savings account until I get my mother's estate matters settled. I left the other 80k with the financial person because I didn't know much about fees and how they detract from the investment.

I had a similar situation at my Mother's death. It sounds like the 80K at the financial person is a taxable account. If so, you need to have two Vanguard accounts. A regular Vanguard taxable account and a Vanguard taxable brokerage account. You'll probably be a "Voyager" client ($50K-$500K) invested at Vanguard. Any mention of fees in this post assumes that you are.

Any stocks and any non-Vanguard mutual funds that are handled by Vanguard can be transferred "in kind" to the Vanguard brokerage account. At your convenience, you can sell these. The sale will cost $7.00 per trade for stocks and ETFs and either nothing or $20.00 for mutual funds. This is probably less than your current broker but check his prices before you make the transfer.

If you own mutual funds that are not carried by Vanguard, you'll have to sell them at your current broker and transfer the cash.

When you sell the stocks or mutual funds, you'll have to pay capital gains tax on any gains. The cost basis is set at the value on the day your Mother died. This is also the date used to decide if you have to pay short or long term gains. You may want to consider waiting for a full year and a few days after you mother died before selling so that these gains qualify for the lower long term tax rates.

Your current broker will probably hit you with an account closing fee. There is no way around this.

This helps. I'm not so jazzed about having a brokerage account; it isn't my style. As I said before, after my mother died I didn't know any better. I just want to have 3 or 4 fund portfolio and rebalance them yearly. If I can transfer them in kind and convert later, that would be good.